The D2C Option for CPG Players
As promised in the last post ‘The Retail Option for CPG Players’ last week, this week Outside In explores the D2C Option/Opportunities for CPG Players this week. Agreed…most of us already know a ton about this space. This piece, thereby, tries only to summarize the observations and learnings from some of the pioneering CPG players who have tasted success in the Direct-to-Consumer (D2C) arena. Here we go…
Context & Benefits for D2C Option by CPG Players
First-up, as always, let’s set the context of where CPG players stand today and why the D2C option could be a compelling option for their growth plans – by looking at consumer & industry trends in CPG:
1) Industry Stalwarts Rush In (and they are doing it in 3-ways):
Acquiring (or investing in) Competitors – Since 2015, Unilever has acquired dozens of companies, including D2C Brands - Like Dollar Shave Club (for $1 billion in 2016), Schmidt’s Naturals (for an undisclosed amount in 2017), and UK-based Graze (for £150M in 2019)
Legacy CPG companies are launching entirely New Brands – Procter & Gamble’s EC30 is one example of this increasingly common strategy. Originally launched on Indiegogo with the name “DS3”, EC30 is an eco-oriented brand of dissolvable, solid-form soaps and cleaning products
Traditional CPG brands are selling their Existing Brands directly to Consumers – Last year, PepsiCo announced 2 new websites to do exactly that: PantryShop.com and Snacks.com. And their DTC sales nearly doubled in that Quarter
Notable India D2C brands have emerged in the form of Tata Tea 1868, Sonnets by Tata Coffee, ITC e-store, Mars Wrigley e-store, Mother Dairy and so on
2) New “Challenger” CPG Brands Emerge:
By removing the middleman, the D2C model promises bigger margins, more nimbleness in product offerings, and valuable consumer relationships. And right now, DTC startups are busy nibbling away at traditional CPG brands' profits
Thanks to competitors like Dollar Shave Club and Harrys, Gillette's share of the US razor market fell from about 70% to under 50% in the course of a decade
Like Dollar Shave Club, many DTC startups use a Subscription Model, bringing in a steady stream of recurring revenue. Other growing subscription-based DTC brands include Blue Apron, GlossyBox and BarkBox
Notable India D2C brands have emerged in the form of Bombay Shaving Company, Sugar Cosmetics, boAT, Wow Skin and so on
3) Consumers Expect Product Personalization:
70% of the top D2C subscription brands use product quizzes (usually during or before the signup process) to help personalize the customer experience
Example 1: Monthly subscription box service BarkBox asks questions like: What's your dog's name? How big is it? Questions concerning breed, date of birth, and allergies. According to Forbes, about 120,000 different variations of each BarkBox go out to a million dogs each month
Example 2: In 2019, L'Oreal launched the DTC hair color brand Color&Co. The brand relies on personalization as its main differentiator
The Case for CPG D2C
1) Influencers Launch D2C Brands
D2C companies, including Casper, Allbirds, Bonobos, and Warby Parker, famously used influencer marketing to grow their startups in record time. And it worked
It is one of the reasons that influencer marketing became a D2C mainstay: Compared to PPC and SEO, influencer marketing resulted relatively low customer acquisition costs (CAC)
Many social media influencers are launching their own direct-to-consumer brands. Instagram influencer Kylie Jenner's Kylie Cosmetics is probably the most famous example of the "Influencer Entrepreneur" D2C brand
Closer home in India, Aditya Birla Fashion (ABFRL) & Masaba have tied up to launch a new D2C Brand:
The partnership aims to position ‘Masaba’ as an affordable luxury brand focused on the young, aspirational gen-next crowd. The brand’s offerings will span the apparel, accessories, beauty and other lifestyle product categories. Brand 'Masaba' will be scaled predominantly through the Digital/D2C channel, leveraging its strong connect with younger and digitally influenced consumers. The brand is targeting to achieve annual revenues of around Rs 500 crore in the next 5 years
The tie-up will also mark ABFRL's entry into the beauty & personal care market in India, which is a rapidly growing segment driven by an increase in women shoppers, rise in disposable incomes and acceleration in digital influence. The new brand will introduce multiple product extensions bringing Cosmetics, Personal Care, Athleisure & Home Decor to its portfolio. The House of Masaba already had established a strong foothold among the youth with a robust digital-first strategy and the tie-up with ABRFL is expected to strengthen this position, making the brand future ready
2) Increased Competition within Categories
Not long ago, selling mattresses online was completely novel. Flash forward to today, and there are dozens of D2C mattress companies (including Purple Mattress and NectarSleep) fighting for market share. Closer home Wakefit competes with a Duroflex and Sleepyhead in the same consumption space
In fact, there’s an entire blog that is dedicated towards the Mattress space – called the “Mattress Blog” and it churns out detailed & objective analysis on the entire Product Proposition. Check out the complete write-up on Wakefit vs Sleepyhead here at: https://thatmattressesblog.com/wakefit-vs-sleepyhead/
It's the same story with the eyewear space. Warby Parker had a brief first-mover advantage. But they're now competing against emerging competitors, like Lensabl. Closer home, Lenskart now competes with a Spexmojo.com
3) Social Media Shopping Goes Mainstream
The old customer experience flow of "see a product on Instagram, click a link in the description and buy the product" is quickly breaking down. Social Shopping is quickly integrating e-Commerce into social media platforms. And it's becoming an increasingly common way for members of GenZ and millennials to shop Online
With social shopping, consumers can buy items without needing to go through an entire checkout funnel. Plus, social media platforms get a cut of the action
For example, Instagram Checkout lets users buy products that they see in their feed. Without needing to navigate away from Instagram
TikTok has rolled out "Small Gestures" to see how their user base reacts to Social Shopping
Examples of ‘Small Gestures’ Brand Partners and Gifts include:
Adobe Premiere Rush, a video editing app, offers a free 90-day subscription to Premiere Rush
Alo Moves, on-demand yoga & fitness classes for home and on the go, offers a free 30-day trial
DoorDash, on-demand food delivery platform, 1-month free DashPass subscription
Fitplan, fitness training, free 90-day trial of the Fitplan platform
Fluent Forever, a language-fluency app, is offering a 60-day free subscription
Pandora, the streaming service, is offering a 90-day trial subscription
Skillshare, an online learning community, a 2-month Premium Membership for unlimited access to Skillshare
Gifts one can send through Small Gestures are provided by these and more of such partners in beauty, music, gaming, creativity, fitness & wellness, food & hospitality industries
4) The Subscription Opportunity
Speaking of subscription pricing, a recent survey found that 70% of decision-makers within businesses believe that memberships and subscriptions is a key to growth
It probably explains why a growing number of D2C brands are adopting the SaaS model of monthly recurring subscription pricing. It includes niche D2C companies, like pet supply brand Chewy. But also eCommerce giant Amazon – Amazon's "Subscribe & Save" feature is the subscription model applied to specific products on the site
So while many D2C brands will continue to offer one-off purchases, expect more of them to offer subscription as an option. Or as the only way to buy.
There's also the "monthly box" niche that's continuing to see growth. Unlike Amazon's "Subscribe and Save", a subscription isn't something tacked on to boost revenue. The entire business model is based on it. Birchbox might be the most well-known brand in this category
In the India D2C Landscape, brands are going big on experimenting and testing the waters for models that seek to leverage the creamy layer of consumers through Subscriptions. Ajith Karimpana, founder of House Of Kieraya, believes that while 2010-2020 was the decade of ecommerce, the next ten years will be about the subscription economy
Industry is seeing experiments with models even within this niche — from monthly mystery boxes such as the ones by FabBag to daily meal kits by a number of cloud kitchens. Then there are marketplaces such as Scriberr dedicated to subscriptions or EV startups offering bikes and cars on long-term subscriptions, besides furniture and durables — the coming of age of the subscription model within the D2C segment belies its relative youth within the Indian digital economy
In Conclusion
The CPG industry is changing fast. New CPG competitors are emerging every day. Thanks largely to e-commerce options and improved delivery times, consumers increasingly expect "CPG on demand"
And many incumbents are struggling to adapt to changing marketplaces, consumer behavior, and pricing strategies. That said, new technologies and consumption habits are also creating new opportunities — for both stalwarts and startups. And the trends that we are seeing now – like product personalization, D2C propositions, private label brands, etc. – are likely to continue growing into 2025 and beyond…
References and Sources:
1. CPG Industry Trends: https://explodingtopics.com/blog/cpg-industry-trends
2. CPG Consumer Trends: https://explodingtopics.com/blog/consumer-behavior
3. DTC Trends: https://explodingtopics.com/blog/dtc-trends
4. India D2C Brands: https://www.thehindubusinessline.com/companies/how-leading-fmcg-firms-are-getting-on-the-d2c-bandwagon/article34811515.ece
5. ABFRL & Masaba D2C: https://www.indiatoday.in/business/story/aditya-birla-fashion-buys-stake-masaba-gupta-to-launch-new-d2c-brand-1899999-2022-01-14; https://www.margnews.com/2022/01/14/aditya-birla-fashion-and-retail-limited-partners-with-designer-masaba-gupta-to-build-a-fashion-and-lifestyle-brand-masaba/
6. Wakefit vs Sleepyhead – The Mattress Blog: https://thatmattressesblog.com/wakefit-vs-sleepyhead/
7. Tiktok Small Gestures: https://www.socialsamosa.com/2020/04/tiktok-introduces-small-gestures-to-send-gifts/
8. India D2C Subscriptions INC42: https://inc42.com/features/dawn-of-the-subscription-economy-among-india-d2c-startups/